Supreme Court Clarifies Market Fee Liability on Agricultural Produce: Arihant Udhyog vs. State of Rajasthan (2017)

Date of the Judgment: June 9, 2017

Citation: (2017) INSC 493

Judges: A.K. Sikri, J. and Ashok Bhushan, J.

When does a sale of agricultural produce officially occur for the purpose of market fee collection? The Supreme Court of India recently addressed this critical question in a batch of appeals concerning the Rajasthan Agricultural Produce Markets Act, 1961. The core issue revolved around whether the purchase of agricultural goods outside the state, but delivered within a market area, attracts market fees. The court, in a judgment authored by Justice A.K. Sikri, clarified the conditions under which such fees are applicable, focusing on the transfer of ownership of goods. This judgment involved a bench of two judges, A.K. Sikri, J. and Ashok Bhushan, J.

Case Background

The case involves multiple appeals filed by various businesses, primarily small-scale industries, who are licensees under the Rajasthan Agricultural Produce Markets Act, 1961. These businesses purchased agricultural produce from outside the State of Rajasthan and brought it into the state, specifically within designated market areas. The primary contention was whether these businesses were liable to pay market fees on the produce. The businesses argued that the sale was completed outside the state, and they became the owners of the goods before they entered the market area. The Agricultural Produce Market Committee, on the other hand, argued that the sale was completed only when the goods were delivered within the market area, thus making them liable for market fees.

Arihant Udhyog, a small-scale industry, was the lead case. They purchased ‘Toor Whole’ from Jawahar Exim Ltd. in Maharashtra. The invoice for this purchase, dated March 22, 2006, included terms stating that the seller’s responsibility ceased upon delivery, which was to take place in Jodhpur, within the market area. The other appellants had similar arrangements, purchasing goods from outside Rajasthan and having them delivered within the market area.

Timeline

Course of Proceedings

The appellants challenged the demand for market fees by filing writ petitions in the High Court of Rajasthan. The High Court, in a common judgment dated May 14, 2012, dismissed these petitions, accepting the stand of the Agricultural Produce Market Committee that the sale was completed within the market area. The High Court relied on the terms of the invoice of Arihant Udyog, specifically the condition that the seller’s responsibility ceased upon delivery, which was within the market area. Consequently, the High Court held that the ownership of the goods transferred only upon delivery, thus making the transaction liable for market fees. Other writ petitions were dismissed based on this judgment. M/s. Deepak Enterprises’ writ petition was also dismissed by a separate judgment, following the Arihant Udhyog ruling.

Legal Framework

The judgment primarily revolves around the interpretation of the Rajasthan Agricultural Produce Markets Act, 1961, and the Sale of Goods Act, 1930. Key provisions include:

• Section 14 of the Rajasthan Agricultural Produce Markets Act, 1961: This section empowers the market committee to issue licenses to traders, brokers, and other persons to operate in the market. It also allows for licenses for direct purchase from agriculturists for processing, export, or value addition.

  “Where a market is established under the provisions of this Act, the market committee may issue and renew Licence, in accordance with the rules and bye-laws, to traders, brokers, weighmen, measurers, processors, surveyors, warehousemen or other persons to operate in the market on payment of the prescribed fees.”

• Section 17 of the Rajasthan Agricultural Produce Markets Act, 1961: This section grants the market committee the power to collect market fees on agricultural produce bought or sold within the market area.

  “The market committee shall collect market fees from the Licences in the prescribed manner on agricultural produce bought or sold by them in the market area at such rate as may be specified by the State Government, by notification in the official gazette…”

• Rule 58 of the Rajasthan Agricultural Produce Market Rules, 1963: This rule specifies that market area committees shall collect cess on agricultural produce bought and sold in the market area. It also includes an explanation that a sale is deemed to have taken place in the market area if the produce is weighed or measured there for the purpose of sale.

  “A market area committee shall collect cess on agricultural produce bought and sold in the market area at such rate as may be specified by the Government by way of notification…”

  “For the purpose of this rule a sale of agricultural produce shall be deemed to have taken place in a [Market area] if it has been weighed or measured or surveyed by a licensed weighman, measurer or surveyor in the Market area for the purpose of sale…”

• Section 4 of the Sale of Goods Act, 1930: Defines a contract of sale, distinguishing between a ‘sale’ and an ‘agreement to sell’.

  “(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another.
  (2) A contract of sale may be absolute or conditional.
  (3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.
  (4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.”

• Section 19 of the Sale of Goods Act, 1930: Specifies that property in goods passes when the parties intend it to pass, and this intention is to be gathered from the terms of the contract.

  “(1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.
  (2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.
  (3) Unless a different intention appears, the rules contained in sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer.”

• Sections 20-24 of the Sale of Goods Act, 1930: These sections provide rules for determining the intention of the parties regarding when the property in goods passes, especially when such intention cannot be directly ascertained from the contract.

Arguments

Appellants’ Arguments:

• The appellants argued that they purchased agricultural produce from outside the State of Rajasthan, and the sale was completed before the goods entered the market area. They contended that the ownership of the goods had already passed to them outside the state, and therefore, they were not liable to pay market fees.
• They submitted that they were not trading in agricultural goods but were using the produce for processing in their factories. They argued that market fees should not be levied on goods brought for manufacturing purposes.
• They relied on the terms and conditions of the invoices, stating that the goods were sold at their risk and cost, and in some cases, they had obtained insurance for the goods, indicating that the ownership had passed to them outside the market area.
• They cited Gujarat Ambuja Exports Limited & Anr. v. State of Uttarakhand & Ors. [2016] 3 SCC 601, arguing that market fees cannot be levied on agricultural produce brought for processing and not for sale.
• They also cited Agricultural Market Committee v. Shalimar Chemical Works Ltd. [1997] 5 SCC 516, stating that the property in goods passes to the buyer when the contract is made if the goods are specific and in a deliverable state, unless a different intention appears.
• They argued that under Section 23(2) of the Sale of Goods Act, 1930, delivery to a common carrier is equivalent to delivery to the purchaser.

Respondents’ Arguments:

• The respondents, including the Agricultural Produce Market Committee, argued that the sale was completed only when the goods were delivered within the market area. They contended that the ownership of the goods passed from the seller to the appellants at the time of delivery within the market area.
• They referred to the terms and conditions of the invoices, particularly the clause stating that the seller’s responsibility ceased upon delivery, to argue that the sale was completed within the market area.
• They cited Agricultural Produce Market Committee v. Biotor Industries Limited & Anr. [2014] 3 SCC 732, arguing that the sale is not complete until the goods are weighed within the market area.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court framed the following key issue:

1. Whether the appellants, who are purchasing agricultural produce and bringing it to the market area covered by the Rajasthan Agricultural Produce Markets Act, 1961, and the Rajasthan Agricultural Produce Market Rules, 1963, are liable to pay market fees on the said produce.
2. Whether the sale of goods was concluded outside the State of Rajasthan.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

• Agricultural Market Committee v. Shalimar Chemical Works Ltd. [1997] 5 SCC 516 (Supreme Court of India): This case was cited to emphasize that the property in goods passes to the buyer when the contract is made if the goods are specific and in a deliverable state, unless a different intention appears.
• Agricultural Produce Market Committee v. Biotor Industries Limited & Anr. [2014] 3 SCC 732 (Supreme Court of India): This case was cited by the respondents to argue that the sale is not complete until the goods are weighed within the market area. The court distinguished this case by stating that it was against the appellants.
• Gujarat Ambuja Exports Limited & Anr. v. State of Uttarakhand & Ors. [2016] 3 SCC 601 (Supreme Court of India): This case was cited by the appellants to argue that market fees cannot be levied on agricultural produce brought for processing and not for sale. The court distinguished this case by stating that it was not applicable to the facts of the case.

The Court also considered the following legal provisions:

• Section 14 of the Rajasthan Agricultural Produce Markets Act, 1961: Power of market committee to issue licenses.
• Section 17 of the Rajasthan Agricultural Produce Markets Act, 1961: Power to collect market fees.
• Rule 58 of the Rajasthan Agricultural Produce Market Rules, 1963: Market area cess.
• Section 4 of the Sale of Goods Act, 1930: Sale and agreement to sell.
• Section 19 of the Sale of Goods Act, 1930: Property passes when intended to pass.
• Sections 20 to 24 of the Sale of Goods Act, 1930: Rules for ascertaining intention of parties.

Authority Table

Judgment

The Supreme Court analyzed the arguments and the legal provisions to determine when the sale of goods is deemed to have taken place. The Court emphasized that the key factor is the transfer of ownership, which depends on the intention of the parties as gathered from the terms of the contract.

The Court held that in the case of Arihant Udhyog, the terms of the invoice indicated that the seller retained responsibility for the goods until delivery in Jodhpur, within the market area. Therefore, the ownership of the goods was transferred only upon delivery, making the transaction liable for market fees.

However, the Court found that the High Court had erred in applying the same reasoning to all the other cases without examining the specific terms of the contracts in each case. Therefore, the Court remanded the other cases back to the High Court for fresh consideration.

The Court rejected the argument that market fees are not applicable when agricultural produce is used for processing, stating that the levy is on the agricultural produce itself, regardless of its subsequent use.

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Agricultural Market Committee v. Shalimar Chemical Works Ltd. [1997] 5 SCC 516:* The Court used this authority to explain the general principle that ownership of goods passes when the contract is made if the goods are specific and in a deliverable state, unless a different intention appears.
• Agricultural Produce Market Committee v. Biotor Industries Limited & Anr. [2014] 3 SCC 732:* The Court distinguished this authority, stating that it was against the appellants.
• Gujarat Ambuja Exports Limited & Anr. v. State of Uttarakhand & Ors. [2016] 3 SCC 601:* The Court distinguished this authority, stating that it was not applicable to the facts of the case.

What weighed in the mind of the Court?

The Supreme Court’s reasoning was primarily influenced by the terms of the contract of sale and the principles of the Sale of Goods Act, 1930. The Court emphasized that the intention of the parties, as reflected in the terms of the contract, is paramount in determining when the sale is completed and when ownership of the goods is transferred. The Court also considered the statutory provisions of the Rajasthan Agricultural Produce Markets Act, 1961, and the Rajasthan Agricultural Produce Market Rules, 1963, to determine the applicability of market fees.

The Court also gave importance to the fact that the High Court had not gone into the terms of the contract in each of the cases, which was needed to be done to determine when the sale was completed.

The Court also clarified that the market fee is applicable on agricultural produce irrespective of its use. The Court also distinguished the authorities cited by the appellants.

The Court’s reasoning was a mix of legal interpretation and factual analysis, with a focus on the specific terms of each contract.

Sentiment Analysis Table

Fact:Law Ratio

Logical Reasoning

Key Takeaways

• The liability to pay market fees depends on where the sale of agricultural produce is completed, i.e., where the ownership of the goods is transferred.
• The intention of the parties, as reflected in the terms of the contract, is crucial in determining when the ownership of goods is transferred.
• If the terms of the contract indicate that the seller retains responsibility for the goods until delivery within the market area, the sale is deemed to have been completed within the market area, and market fees are applicable.
• Market fees are applicable on agricultural produce irrespective of its use, i.e., whether it is for sale or processing.
• High Courts must examine the specific terms of the contract in each case to determine the applicability of market fees.

Directions

The Supreme Court directed the High Court to re-examine the writ petitions, except for Arihant Udhyog, based on the specific terms and conditions of the contracts of sale in each case, in light of the law stated in this judgment.

Specific Amendments Analysis

There is no specific amendment analysis in this judgment.

Development of Law

The ratio decidendi of this case is that the liability to pay market fees depends on where the sale of agricultural produce is completed, i.e., where the ownership of the goods is transferred. The Court clarified that the intention of the parties, as reflected in the terms of the contract, is paramount in determining when the ownership of goods is transferred. This judgment clarifies the legal position regarding the applicability of market fees on agricultural produce bought from outside the state and brought into the market area.

Conclusion

The Supreme Court’s judgment in M/s. Arihant Udhyog vs. State of Rajasthan & Ors. clarifies the conditions under which market fees are applicable on agricultural produce brought into a market area. The Court emphasized that the transfer of ownership of goods, determined by the terms of the contract, is the key factor. While the Court upheld the High Court’s decision in the case of Arihant Udhyog, it remanded other cases for fresh consideration, highlighting the need for a case-by-case analysis of the contracts. This judgment provides valuable guidance for businesses and market committees regarding the levy of market fees.